Edited version of private ruling

Authorisation Number: 1011509869991

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Ruling

Subject: GST and supplies made by non-resident and subsidiary in Australia

Questions

1. Are the points supplied by a non-resident company to Australian customers considered to be a voucher under Division 100 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer: No.

The points supplied by the non-resident company are not a voucher under Division 100 of the GST Act. The supply of the points by the non-resident company to Australian customers is a taxable supply under section 9-5 of the GST Act.

2. Are the services supplied by an Australian entity (you) to your non-resident parent company a taxable supply?

Answer: No.

You are not making a taxable supply of services to your non-resident parent company. You provide the services on behalf of the non-resident parent company to Australian customers and you are not making a separate supply in your own right.

Relevant facts

You are an Australian company that is registered for GST.

You are a wholly owned subsidiary of a non-resident company which is incorporated overseas.

The non-resident company provides online product services. Customers subscribe to become a member to acquire this service by purchasing points at their website.

The payment is processed through the non-resident company's merchant account and the points will appear on the customer's page.

The points purchased at the non-resident company website are charged at a value per point.

The points are not presented as an image or graphic at the subscriber's account. The subscriber's account only shows the number of points available and it does not show the monetary value of the points.

Once the customer has redeemed the services, the point value of the services is deducted from the customer's accumulated points tally.

The non-resident company then arranges the services.

The non-resident company makes a commission payment to Australian customers who introduce other people to purchase products at its website. The commission is in monetary value.

You are the representative of the non-resident company in Australia. You serve as a contact point for their Australian customers. You manage the relationship with the Australian customers to ensure that they are satisfied with the products and services. You also provide services of forwarding gifts.

The non-resident company arranges for you to provide the product services in Australia if an Australian customer selects to have products sent to recipients in Australia and New Zealand.

The non-resident parent company will reimburse you for the costs incurred in providing these services on their behalf.

The non-resident company does not pay you any consideration for the services you provide to customers on their behalf.

You do not receive any consideration from the customers directly for the services you provide.

Your entity has an employee and the employee receives a salary directly from the non-resident company. You lodge PAYG activity statements for this employee and the non-resident company makes the payment directly to the Tax Office on your behalf.

The non-resident company also pays for your administrative expenses.

You do not have a written agreement with the non-resident company as both entities are under common control.

The non-resident company is not registered for GST in Australia and has authorised you to apply the private ruling on its behalf in relation to its tax matters.

The non-resident company's turnover in Australia exceeds $75,000 per annum.

Reasons for decisions

GST status of the supply of the points purchased online

The customers purchase points online at the non-resident company's website. The points purchased are credited to the customer's account and entitle the customers to order and send the products to nominated recipients by redeeming points online.

We will consider if customers are purchasing a voucher when they purchase points from the non-resident company's website.

Voucher

Goods and Services Tax Ruling GSTR 2003/5 discusses the GST implications on vouchers.

In normal circumstances, the supply of a voucher for consideration will be a taxable supply where the requirements of section 9-5 of the GST Act are met.

However, Division 100 of the GST Act provides a special rule that alters the GST treatment of certain vouchers, which are commonly referred to as face value vouchers (FVV) so that they are not taxable when supplied to a purchaser.

Where an article satisfies the meaning of voucher in section 100-25 of the GST Act and the additional requirements in section 100-5 of the GST Act, the article is considered to be a FVV.

Subsection 100-25(1) of the GST Act defines the meaning of a voucher. It states:

(1) A voucher is any:

(a) voucher, token, stamp, coupon or similar article; or

(b) *prepaid phone card or facility;

the redemption of which in accordance with its terms entitles the holder to receive supplies in accordance with its terms. However, a postage stamp is not a voucher.

(* denotes a defined term in section 195-1 of the GST Act).

The GST Act does not define 'voucher', 'token', 'coupon', 'stamp' or 'article'. These terms take their ordinary meaning.

You advise that the points supplied by the non-resident company are directly credited to the customer's account and do not appear in any other graphic or image form similar to a voucher, token, stamp or coupon.

Section 100-5 of the GST Act imposes the following additional requirements:

· the supply of a voucher must otherwise be a taxable supply,

· the holder of the voucher is entitled,

· upon redemption the voucher must entitle the holder to receive a reasonable choice and flexibility of supplies,

· the monetary value must be stated on the voucher; and

· on redemption of the voucher the holder is entitled to supplies up to its stated monetary value.

You advised that the points do not have any stated monetary value. Therefore, the points supplied by the non-resident company are not a FVV for Division 100 of the GST Act purposes.

The points supplied should be treated under the basic rules resulting in GST being payable when the points are supplied rather than when they are redeemed where all the requirements under section 9-5 of the GST Act are met.

Taxable supply

GST is payable where all the requirements in section 9-5 of the GST Act are met.

Section 9-5 of the GST Act states:

You make a taxable supply if:

a. you make the supply for *consideration; and

b. the supply is made in the course or furtherance of an *enterprise that you *carry on; and

c. the supply is *connected with Australia; and

d. you are *registered or *required to be registered.

However, the supply is not a * taxable supply to the extent that it is *GST-free or *input taxed.

The supply of points by the non-resident company to Australian customers will be taxable if they meet all the requirements in section 9-5 of the GST Act.

A supply is defined in section 9-10 of the GST Act to include, amongst other things, any of these:

· a supply of goods, or

· a supply of services, or

· a creation, grant, transfer, assignment or surrender of any right.

The points supplied by the non-resident company entitle the customers to order and send products at a later date. The non-resident company is supplying a right to the customers.

From the information received in the GST private ruling request, the non-resident company has satisfied paragraphs 9-5(a) and 9-5(b) of the GST Act as:

(a) it makes the supply of points for consideration, and

(b) the supply is made in the course of an enterprise that it carries on.

Therefore, we have to determine whether the supplies made by the non-resident company to Australian customers are connected with Australia under paragraph 9-5(c) of the GST Act and whether it is required to be registered for GST under paragraph 9-5(d) of the GST Act.

Supplies connected with Australia (paragraph 9-5(c) of the GST Act)

Subsection 9-25(5) of the GST Act provides that a supply of anything other than goods or real property is connected with Australia if:

(a) the thing is done in Australia; or

(b) the supplier makes the supply through an enterprise that the supplier carries on in Australia; or

(c) all the following apply:

i. neither paragraph (a) nor (b) applies in respect of the thing;

ii. the thing is a right or option to acquire another thing;

iii. the supply of the other thing would be connected with Australia.

Goods and Services Tax Ruling GSTR 2000/31 explains when a supply is connected with Australia under section 9-25 of the GST Act.

Paragraph 9-25(5)(a)

'Thing' is defined in section 195-1 of the GST Act to mean anything that can be supplied or imported. Things other than goods or real property that can be supplied include services, advice, information, rights, obligations to do anything, or any combination of these things. Under paragraph 9-25(5) of the GST Act the connection with Australia requires that the 'thing' being supplied is 'done' in Australia.

The meaning of 'done' depends on the nature of the 'thing' being supplied. 'Done' can mean, for example, performed, executed, completed, finished etc depending on what is supplied.

The supply involves the supply of a right by the non-resident company to customers and the provision of services when the customers exercise their right to acquire the services.

Paragraph 74 of GSTR 2000/31 provides that where a supply constitutes the creation of a right, that supply is done where the right is created. Further, a supply of a right will be taken to be done in Australia if the last act necessary to create a binding contract is performed in Australia (paragraph 76 of GSTR 2000/31).

You advise that the Australian customers purchase the points online at the non-resident company's website. The non-resident company holds the ultimate authority to accept the acquisition of points made by the customers and the transaction is executed outside Australia, that is the last action to create a legally binding agreement occurs outside of Australia as the internet server from which the non-resident company's website is hosted is located in overseas. Therefore, the supply of the rights by the non-resident company to Australian customers is not connected with Australia.

We have to consider if the supply of services is connected with Australia when the Australian customers exercise their right to acquire the services.

You state that the non-resident company has asked you to provide the services where the Australian customers redeem their points to order and deliver the products to recipients in Australia.

As the services are performed by you in Australia, it is considered this part of the supply is connected with Australia.

If a thing is only partly done in Australia, the supply is connected with Australia to the extent that the thing is done in Australia. However, the part of the supply that is not connected with Australia under paragraph 9-25(5)(a) of the GST Act may nonetheless be connected with Australia if the supply is made through an enterprise that the supplier carries on in Australia under paragraph 9-25(5)(b) of the GST Act.

Paragraph 9-25(5)(b)

Subsection 9-25(6) of the GST Act further clarifies 9-25(5) by stating that an enterprise is carried on in Australia if the enterprise is carried on through:

(a) a permanent establishment (as defined in subsection 6(1) of the Income Tax Assessment Act 1936); or

(b) a place that would be such a permanent establishment if paragraph (e), (f) or (g) of that definition did not apply.

Paragraph 84 of GSTR 2000/31 states:

84. For a supply to be connected with Australia under paragraph 9-25(5)(b), a connection must be established between the Australian permanent establishment and the supply.

The definition of permanent establishment in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA) is stated in its entirety:

'Permanent establishment', in relation to a person (including the Commonwealth, a State or an authority of the Commonwealth or a State), means a place at or through which the person carries on any business and, without limiting the generality of the foregoing, includes -

(a) a place where the person is carrying on business through an agent;

(b) a place where the person has, is using or is installing substantial equipment or substantial machinery;

(c) a place where the person is engaged in a construction project; and

(d) where the person is engaged in selling goods manufactured, assembled, processed, packed or distributed by another person for, or at or to the order of, the first-mentioned person and either of those persons participates in the management, control or capital of the other person or another person participates in the management, control or capital of both of those persons - the place where the goods are manufactured, assembled, processed, packed or distributed,

but does not include -

(e) a place where the person is engaged in business dealings through a bona fide commission agent or broker who, in relation to those dealings, acts in the ordinary course of his business as a commission agent or broker and does not receive remuneration otherwise than at a rate customary in relation to dealings of that kind, not being a place where the person otherwise carries on business;

(f) a place where the person is carrying on business through an agent -

(i) who does not have, or does not habitually exercise, a general authority to negotiate and conclude contracts on behalf of the person; or

(ii) whose authority extends to filling orders on behalf of the person from a stock of goods or merchandise situated in the country where the place is located, but who does not regularly exercise that authority,

not being a place where the person otherwise carries on business; or

(g) a place of business maintained by the person solely for the purpose of purchasing goods or merchandise;

Please note that for the purposes of the GST Act, the definition of permanent establishment has a wider meaning than in subsection 6(1) of the ITAA. This is because the exclusions from the permanent establishment definition in paragraphs (e), (f) and (g) of the ITAA are not excluded from the definition for GST purposes.

Paragraph 86 of GSTR 2000/31 provides some factors that indicate whether a supply is made through a permanent establishment in Australia which is reproduced below:

86. There is no specific set of circumstances which must be satisfied before a supply is connected with a permanent establishment. Rather, each case will be determined on the basis of the individual facts and circumstances. However, some factors that will usually indicate that the supply is made through a permanent establishment include:

· the permanent establishment has the authority to sign contracts or accept purchase orders for the supply;

· the permanent establishment has the authority to make important decisions in respect of the supply;

· the permanent establishment physically makes for example, manufactures or produces, the supply;

· if the supply is a service, the service is provided by the permanent establishment;

· if the supply is the provision of advice or information such as a legal opinion, the permanent establishment provides that advice or information;

· if the supply is the grant, creation, assignment, transfer or surrender of a right, the permanent establishment grants, creates, assigns, transfers or surrenders that right.

As the subsidiary of the non-resident company in Australia, you are its representative and serve as a contact point for its Australian customers. You manage the relationship with the Australian customers to ensure that they are satisfied with the services. In addition you arrange to provide services in Australia for the Australian customers on behalf of the non-resident company.

Based on the role and activities carried on by you, the non-resident company is carrying on an enterprise through you, a permanent establishment in Australia. Further, the non-resident company makes their supply of services in Australia through you. Therefore, the non-resident company meets the requirements in paragraph 9-25(5)(b) of the GST Act and their supplies to Australian customers are connected with Australia for the purpose of paragraph 9-5(c) of the GST Act.

Required to be registered (paragraph 9-5(d) of the GST Act)

You have advised the non-resident company is not registered for GST. Therefore, it is necessary to consider whether the non-resident company is required to be registered for GST.

Under section 23-5 of the GST Act, an entity (including non-resident) must register for GST in Australia if:

· it is carrying on an enterprise, and

· its GST turnover from supplies, that are connected with Australia and made in the course of its enterprise, meets or exceeds the registration turnover threshold of $75,000 (or $150,000, if you are a non-profit body).

GST Turnover

Division 188 of the GST Act defines GST turnover. GST turnover is defined by reference to current GST turnover and projected GST turnover.

The current GST turnover is the GST exclusive value of all the supplies the entity makes or is likely to make in the current month plus all the supplies the entity made in the previous 11 months.

The projected GST turnover is the GST exclusive value of all the supplies made in the current month plus all the supplies the entity is likely to make in the next 11 months.

Subsection 188-10(1) of the GST Act provides that an entity's GST turnover meets the registration turnover threshold if:

· its current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that its projected GST turnover is below the turnover threshold; or

· its projected GST turnover is at or above the turnover threshold.

Therefore, if an entity's current or projected GST turnover meets or exceeds $75,000, it is required to be registered for GST in Australia.

It must be noted that in calculating current and projected GST turnover, the following supplies are disregarded:

· supplies that are input taxed, such as sale or lease of residential premises; or

· supplies for no consideration (unless to an associate); or

· supplies not made in connection with the business that you carry on (for example, supplies made in a private capacity); or

· supplies not connected to Australia.

As discussed, the non-resident company is carrying on an enterprise and their supplies to Australian customers are connected with Australia.

You advise that the annual turnover of the non-resident company's supplies that are connected with Australia exceeds $75,000. Therefore, its GST turnover meets the registration turnover threshold and it is required to be registered for GST under section 9-5(d) of the GST Act.

There is no other provision in the GST Act for the non-resident company's supply to be input taxed or GST-free. Accordingly, the supply of the rights by the non-resident company to Australian customers is a taxable supply and GST is payable on the supply.

Additional information

Resident agents acting for non-residents

Under the basic rules for GST, the supplier is liable for the GST on taxable supplies it makes. However, Division 57 of the GST Act contains a special rule that makes resident agents acting for non-residents responsible for the GST consequences of supplies and acquisitions that the non-residents make through them.

If you are a resident and an agent under the general law for a non-resident principal who is registered or required to be registered for GST, and taxable supplies are made by your principal through you, then the GST payable on these transactions is payable by you and not by the non-resident principal. Taxable supplies are made through you as an agent where you have the authority of the non-resident principal to make those transactions on its behalf. Also, you are entitled to input tax credits for creditable acquisitions that the non-resident principal makes through you, being its resident agent.

Below are the relevant sections of Division 57 of the GST Act which relates to resident agent acting for non-resident.

57-5 Who is liable for GST

(1) GST payable on a ^*taxable supply or ^*taxable importation made by a ^*non-resident through a ^*resident agent:

(a) is payable by the agent; and

(b) is not payable by the non-resident.

(2) This section has effect despite sections 9-40 and 13-15 (which are about liability for GST).

57-10  Who is entitled to input tax credits

(1) If a ^*non-resident makes a ^*creditable acquisition or ^*creditable importation through a ^*resident agent:

(a) the agent is entitled to the input tax credit on the acquisition or importation; and

(b) the non-resident is not entitled to the input tax credit on the acquisition or importation.

(2) This section has effect despite sections 11-20 and 15-15 (which are about who is entitled to input tax credits).

57-20 Resident agents are required to be registered

(1) A ^*resident agent who is acting as agent for a ^*non-resident is required to be registered if the non-resident is ^*registered or ^*required to be registered.

(2) The section has effect despite section 23-5 (which is about who is required to be registered).

You do not need to consider section 57-20 of the GST Act as you are already registered for GST.

Goods and Services Tax Ruling GSTR 2000/37 provides the view of the Tax Office on agency relationship and explains the operation of certain provisions of the GST Act in dealing with the agency relationship.

There is no definition of the terms 'agent' or 'agency' in the GST Act. Whether one is acting as an agent is a question of fact.

Paragraph 10 of GSTR 2000/37 explains general law and agency relationships.

Paragraphs 45 to 47 of GSTR 2000/37 discuss 'transactions made through an agent' and provide that when an agent is authorised to undertake a transaction on behalf of the principal, thereby binding the principal to the legal effects of the transaction, then the transaction is made by the principal through the agent.

GSTR 2000/37 can be accessed at our website.

2. Your supply of services to the non-resident company

Supply to Australian customers

As discussed in the Reasons for decision for question 1, the non-resident company is making a taxable supply when they supply points to Australian customers which are later redeemed for services.

You provide the services to Australian customers in Australia on behalf of the non-resident company. You have asked us to consider if you are making a taxable supply under section 9-5 of the GST Act when you provide these services.

Paragraph 9-5(a) of the GST Act provides that you make a taxable supply if you make the supply for consideration.

Subsection 9-15(1) of the GST Act defines consideration and includes:

(a) any payment, or any act or forbearance, in connection with a supply of anything; and

(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

However, paragraph 9-15(3)(a) of the GST Act provides that:

(a) if a right or option to acquire a thing is granted, then:

i. the consideration for the supply of the thing on the exercise of the right or option is limited to any additional consideration provided either for the supply or in connection with the exercise of the right or option; or

ii. if there is no such additional consideration - there is no consideration for the supply;

From the facts given, the customers, once they have created an online account with the non-resident company, can purchase points with the right of acquiring the services. The right to acquire the services is exercised at a later time when the customers redeem the points online. No additional consideration is paid by customers when they redeem their points.

As there is no additional consideration paid when the Australian customers acquire the services, there is no consideration for the supply in accordance with sub-paragraph 9-15(a)(ii) of the GST Act. Therefore, paragraph 9-5(a) of the GST Act is not satisfied. Accordingly, the supply of services to Australian customers is not a taxable supply.

Supply to the non-resident company

Based on the information provided, the non-resident company requests you to provide the services to its Australian customers. You merely perform the services on behalf of the non-resident company and you do not provide an invoice or receive separate consideration for performing these services. As such, the services you provide form part of the non-resident company's supply to Australian customers and you have not made a separate supply of a service in your own right. Therefore, you are not making a taxable supply for the services you supply to the non-resident company.

Reimbursement of your costs by the non-resident company

You advise that the non-resident company reimburse you for the costs of the services that you incur on its behalf. The treatment of disbursements and reimbursements is considered in GSTR 2000/37. Using the example of supplies made by solicitors, paragraphs 48 and 49 of GSTR 2007/37 state:

48. Agents may incur expenses on a client matter both as an agent of the client and as a principal in the ordinary course of providing their services to the client. For example, in most cases, even though agreements between solicitors and clients may not use the term agent or agency, it is clear that the clients have authorised the solicitors to act on their behalf in the particular matter. When the solicitor acts as an agent for the client, the general law of agency applies so that the solicitor is 'standing in the shoes' of the client.

49. If a disbursement is made by a solicitor and incurred in the solicitors capacity as a paying agent for a particular client, then no GST is payable by the solicitor on the subsequent reimbursement by the client. This is because the goods or services to which the disbursement relates are supplied to the client, not to the solicitor, by a third party. Also, the reimbursement forms no part of the consideration payable by the client for the supply of services by the solicitor. However, if goods or services are supplied to the solicitor to enable the solicitor to perform services supplied to the client, GST is payable by the solicitor on any reimbursement by the client of expenses incurred on those goods or services, whether the reimbursement is separately itemised or included as part of the solicitors overall fee. This is because the reimbursement is part of the consideration payable by the client for services supplied by the solicitor.

From the information that you have provided and applying the principle in paragraphs 48 and 49 of GSTR 2000/37, we consider that the goods and services to which the disbursement relates are supplied to the non-resident company and provided to you to enable you to perform the services. You are not making a further supply of these goods and services to the non-resident company. As you are not making a supply to the non-resident company, any reimbursement you receive is not consideration for a supply.

All rulings mentioned in this private ruling is available at our website.

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